Anyone remember the market's panic attack when people realised they had been warned by the Federal Reserve that it couldn’t keep printing money forever and that one day it would have to start “tapering” its quantitative easing?

That realisation of the obvious happened to coincide with a couple of emerging markets having problems of their own.

Markets are not known for being rational. Photo: AFP

The combination lead to all manner of speculation about capital flight, soaring rates and general disaster.

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But the headlines passed and, somewhat bemusingly, when the Fed did start tapering, markets took it pretty much in their stride.

Similarly, after all the scaremongering about an Argentine default, the actual failure to cave in to a rapacious hedge fund last week hasn’t done much either.

America effectively has a developing nation inside its own economy. Photo: AFP

My suspicion is that we’re seeing a bit of the same in Wall Street 's knee jerk reaction last week to the idea that US interest rates won’t be able to stay extremely low forever, that at some stage the price of money will have to start getting back to normal.

There’s plenty of time for Wall Street to get its head around the idea of less stimulatory monetary policy and a good chance that by the time the Fed actually lifts rates off the floor, it again won’t matter.

Enough time will have passed for the traders’ noise to have subsided and for investors to understand that higher rates would reflect a stronger economy with lower unemployment and better growth – what everyone needs. The longer the party just runs on monetary stimulus, the less fun it really is.

Department store sales Photo: ABS

The general adage has long been “buy the rumour, sell the news”. For the big picture stuff, it’s become more “sell the rumour, yawn the news”.

But no-one accuses traders of being rational, especially after a big run up into record territory that was probably looking for an excuse for a breather anyway.

Our stock market has had less reason to go along with the Wall Street roller coaster ride, but we’ve been having a crack anyway. We haven’t run as high and the balance of our economic news remains reasonable.

Monthly retail sales Photo: ABS

And what’s more, there’s a fair chance that the eventual modest increase in US rates will be positive for the Australian economy and most who sail in her.

RBA's hopes

If all goes according to the Reserve Bank’s hopes and prayers, firmer US interest rates will help weaken the Aussie, while our rates will stay where they are as the economy continues its transition.

That would be nice, as America’s early view to possible rate increases is not the same as ours.

Last week there were more voices publicly added to the belief that the overall US unemployment rate isn’t what counts as a potential inflation warning.

The sad reality of the US is a much more disparate society. There’s effectively a developing country tucked away inside the richest and most profligate nation on earth. Parts of it aren’t developing at all.

The laissez-faire, low-wage, devil-take-the-hindmost society beloved by some of the local Billy Tea party comes at a cost.

Underemployment key

While the overall US unemployment rate sits at 6.2 per cent, it’s not the size of the total pool of unemployed that determines whether wage pressure builds, but the size of the employable unemployed.

(The loss of skills and employability among the long-term unemployed is the main reason for hard-hearted economic rationalists to appreciate Australia’s big GFC stimulus package – the cost of the deficit has to be considered against the cost of a blowout in unemployment.)

I spent last week on an investment roadshow with funds manager Fidelity (yes, disclosure, they paid me to say a few words). One of the speakers was Fidelity’s Asian fixed interest investment director, Gregor Carle, who specified that it’s the trend in the short-term unemployment rate in the US that Fidelity’s fixed interest team watches for early signs of inflation coming back to life.

He had the graphs to demonstrate the history and noted that the trend is short-term unemployment is indeed positive for the unemployed and negative for those who might not want wages to rise.

Elsewhere there were reports of skills shortages building in key US industries, including construction. That’s not happening here in these early days of our transition from reliance on resources construction projects. Another nice rise in employment in the July Australian labour force stats this Thursday won’t be changing the RBA’s mind about anything.

Indeed, rather than catching a dose of the Yellen yips about higher rates, local investors still have to digest what sort of productivity bonus the corporate sector is about to report and the speed of that transition.

Retail sales

Today’s retail sales figures are saying the jury is still out on the recovery of consumer confidence. Yes, the seasonally adjusted guess for June was a nice 0.6 per cent improvement after May’s dive, but drawing a line through it with the trend series, there’s not much happening – retail sales growth of just 0.1 per cent for each of the past three months.

Winter finally arriving in July should help when last month’s numbers are counted, but the quarter’s poor dollar figure despite decent volume growth isn’t inspiring.

Of course, it could be worse – it could just be the sorry department store sector, continuing to fade away. You have to go back to 2008 to find a June with lower original department store turnover.